is eroding the government’s authority and undermining hopes of more reform

Feb 25th 2012 | The Economist.

ACCORDING to a recent poll, Indonesians are the merriest people on earth: a mighty 51% of respondents on the sprawling archipelago told the Ipsos research firm that they are “very happy”. It is a fairly safe bet, though, that the president, Susilo Bambang Yudhoyono, was not one of them, nor were members of his ruling Democratic Party. Looking at their own plummeting poll ratings and rising political difficulties, they must feel almost as miserable as Hungarians and Russians, the gloomiest of the gloomy, according to Ipsos (see article for more on this poll).

After a thumping election victory in 2009, it was only natural that the president’s standing would slip. In recent months, however, it has taken a tumble. Having won 61% of the vote three years ago, Mr Yudhoyono was polling as low as 42% at the end of last year. In one survey, by the Jakarta office of the Centre for Strategic and International Studies, only 17.3% of Indonesians said they would vote for him in 2014 if a constitutional limit on two-term presidents did not prevent him from running again. The president’s party is also faring badly. Having won 21% of the vote in 2009, the Democratic Party (PD, after its initials in bahasa) saw its popularity slump to 13.7% in a recent poll, trailing behind its main rival, Golkar, on 15.5%. As a result, argues a senior PD legislator, Hayono Isman, the party now “faces the biggest challenge in its history”.

The immediate cause of grief is a series of high-profile corruption scandals. But they are only part of the story. The way the government has handled them has increased the perception that it has gone adrift and that the president himself has lost authority. Barely half-way through his second term, Mr Yudhoyono already looks like a lame duck. His ministers largely ignore him, and everyone has their eyes on the succession. None of this augurs well for the political stability of the region’s most important country, even though the economy, stimulated by a consumer boom and fuelled by strong demand for the country’s coal and other resources, is purring along nicely.

The corruption scandals stem largely from the arrest last year of the PD’s former treasurer, Muhammad Nazarruddin. He is now on trial for rigging construction tenders for last year’s South-East Asian games, hosted by Indonesia, to the tune of up to $365m. That is bad enough. Even more damaging, however, is his explanation in court that he was not doing this for personal gain, but to raise funds for the party’s political campaigns and expenses. And he has been naming names. The party chairman, Anas Urbaningrum, is now a suspect, as is Angelina Sondakh, an MP, former Miss Indonesia and the party’s deputy secretary-general. Two ministers are being questioned in court and the country’s anti-money laundering agency has said that there were at least 23 suspiciously large transactions between Mr Nazarruddin and “one or two” ministers.

Indonesians are used to reading about graft and embezzlement. Their country remains, unfortunately, one of the most corrupt in the world. But Mr Yudhoyono was elected mainly on a promise to fight corruption. And even though he himself is widely believed to be clean, the drip-drip of allegations from Mr Nazarruddin’s trial will implicate more people, further undermining the party’s standing and tarnishing the president’s reputation.

There is also a lot of frustration, even within the PD, over the way in which the president has handled the crisis. Despite demands that he force the party chairman to step down while investigations are going on, the president has done nothing. Instead, Mr Urbaningrum is staying put until he has a formal legal case to answer. To critics, this is merely dragging out the party’s public humiliation.

The president’s indecisiveness—timidity even—will further undermine his authority. It adds to the impression that Mr Yudhoyono, a former general, lacks the guile and single-mindedness to push through the reforms he says the country needs. If Indonesia is to continue to grow at its current lick of 6% or so a year, it must do more than export coal and buy smart-phones. It needs better roads and ports, less corruption, a better bureaucracy, and much else besides. Yet despite all the promises, too little has been done, often too late. And now even less will be.

Part of this failure is attributable to the intrinsic difficulty of governing Indonesia at all. With a population of 238m, the country has a highly decentralised political system, so pushing any federal reforms through is hard. Yet the failure can also be blamed on the president’s style of leadership. Despite his own impressive personal mandates from the electorate, as head of a six-party coalition he has always favoured achieving consensus and keeping everyone on board over effective government. Last year the president’s own Delivery Unit, part of the presidency charged with making sure that his wishes are carried out, reported that more than 50% of his policies and orders were ignored by ministers. Yet, in a subsequent reshuffle, most kept their ministries because of their political value.

Such a weak presidency has not only sapped the momentum for reform, it has also led to worrying nostalgia for a return to “stronger” or even authoritarian government, Suharto-style. One sign of this is the emergence of Prabowo Subianto as a possible successor in 2014. Another former general, he was accused of human-rights abuses as head of the special forces in East Timor in the mid-1990s and also as head of the army’s strategic reserve in Jakarta during the last days of Suharto. A Prabowo presidency would surely not be the sort of legacy that Mr Yudhoyono’s supporters had in mind.

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The Komodo economy – The Economist.

Workers’ protests dampen news of a ratings upgrade

Thick-skinned, buoyant and quick?

IN THEIR presentations to foreign investors, Indonesian officials often like to begin with a montage of images from their fascinating country: the elegant mast of Jakarta’s Wisma 46 skyscraper, for example, and the vast ninth-century Borobudur monument. One presentation last year even featured a Komodo dragon peering out of the frame.

As a symbol of Indonesia’s economic virtues, these enormous and venomous lizards, native to a couple of islands, are not obviously appealing. But they are apt. The Komodo is thick-skinned, with scales resembling chain-mail, and surprisingly quick. That is a fair description of Indonesia’s resilient, resurgent economy. It grew by 6.5% in 2011, according to figures released this month, its fastest pace since the Asian financial crisis in 1997 (see chart). Ministers are already looking forward to Indonesia’s entry this year or next into the club of 15 countries with an annual GDP above $1 trillion.

Its growth also appears armour-plated. The economy withstood the global crisis of 2008 better than most, and so far appears little troubled by the euro’s strife. That resilience reflects the buoyancy of its home market—exports accounted for only 26% of its GDP last year—and Indonesia’s efforts to wean itself off foreign borrowing. Net foreign debt is now less than 10% of GDP, and Fitch, a ratings agency, believes Indonesia’s government might become a net foreign creditor by the end of next year.

That is one reason why the agency raised the country’s sovereign credit rating in December; Moody’s followed a month later. It has restored the cherished “investment-grade” status that Indonesia’s government lost during the Asian financial crisis. The establishment is thrilled.

Government officials say all the good news should be a catalyst for greater foreign-direct investment, which reached a record $19.3 billion in 2011, up a fifth from the previous year. But there is danger in reading too much into a credit rating. Maybe the government will always pay up, but other kinds of investment will not necessarily pay off.

Indeed, some of Indonesia’s fiscal austerities may have come at the expense of the economy as a whole. The government has often struggled to spend the money it has budgeted, even for worthwhile projects. In 2008-10 the central government spent less than three-quarters of the money it had allocated for public investment. Sometimes the only cash that seems to flow freely is for wasteful fuel subsidies. Part of the improvement in Indonesia’s public finances, therefore, reflects fiscal constipation more than it does budget conservatism.

Chronic underspending is partly because of heightened scrutiny of graft in the wake of some high-profile corruption busts, as well as bureaucratic bottlenecks, such as the difficulty of buying land. A new land-acquisition law passed in December should quicken spending on needed infrastructure.

But if land is one problem, labour is becoming another. On January 27th several thousand factory workers on motorcycles blocked a main toll road linking manufacturing zones in West Java to Jakarta, the capital, backing up traffic and paralysing the region’s commerce. The workers were protesting against a court ruling overturning the provincial governor’s decision to raise their minimum wage by 15.5%, to about $165 a month.

Susilo Bambang Yudhoyono, Indonesia’s president, immediately intervened—on behalf of the blockading workers. His labour ministry asked the employers’ association, which had won the court case, to back down. The government’s handling of the dispute irked foreign investors. The South Korean embassy, according to the Jakarta Post, wrote to the government, lamenting the congestion, disruption and damage to factories. Japan’s embassy complained to the police. And an official at Taiwan’s trade office warned that some Taiwanese firms would leave Jakarta or even Indonesia. Wages, he argued, should not outstrip inflation.

Yet foreign investors protest too much. To say that wage rises should not exceed inflation is to say that real wages should remain stagnant—in other words, that Indonesia should never develop. Moreover, figures from Indonesia’s statistics agency suggest that the average wage for Indonesian production workers has not, in fact, outstripped inflation in recent years, although minimum wages have done so. So expect most foreign manufacturing firms to cough up and stay put. Nonetheless, the havoc has reminded overseas investors that a Komodo economy sometimes has a nasty bite.

Correction: The number of countries with an annual GDP above $1 trillion is 15, not 14 as originally stated. This was corrected on February 20th 2012.

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Corruption everywhere , The Economist.

IN INDONESIA, the world’s largest Muslim-majority nation, many politicians hold open houses on the first morning of the post-Ramadan Idul Fitri holiday to greet supporters and well wishers, before spending the afternoon with their own families. Last week, lawmaker Muhammad Nazaruddin proved to be an exception, spending August 31st in police detention facility just outside the capital Jakarta on corruption charges while his wife, also a suspect, remained on the run abroad with the couple’s children. Mr Nazaruddin, who is now the most celebrated detainee in a country bursting with high-profile corruption suspects, marked his 33rd birthday in jail on August 26th.

Only four months ago, the wealthy, handsome businessman-cum-politician was a high-flying member of parliament. It all came crashing down in early May after Mr Nazaruddin was implicated in a scandal involving the construction of athletes’ dormitories for the upcoming Southeast Asia Games, which Indonesia is hosting. National and provincial government officials, an executive from a company run by Mr Nazaruddin that won the construction tender, as well as a fellow lawmaker from the Democratic Party, have also been arrested or implicated. On May 23rd, a humbled Mr Nazaruddin boarded a flight to Singapore and went on the run before Indonesia’s Corruption Eradication Commission (KPK) could request a travel ban. He was finally arrested in the Columbian resort town of Cartagena on August 8th and flown home.

Mr Nazaruddin’s spectacular fall from grace has spotlighted the fact that, despite being 13 years removed from the fall of Indonesian dictator Suharto’s corrupt regime in 1998, opportunistic government officials, lawmakers and businessmen continue to collude on the awarding of state contracts, budget funds, big business deals, and even tax breaks in exchange for a piece of the action. This is an embarrassment for the world’s third-largest democracy and a leading emerging economy.

While Mr Nazaruddin’s arrest is another black eye for parliament, the scandal has also spread far and wide. Mr Nazaruddin was treasurer of President Susilo Bambang Yudhoyono’s ruling Democratic Party, and before he was finally detained by Columbian immigration, he claimed from abroad that other senior Democratic Party figures were aware of the graft involving the dormitory project and had themselves profited by it. The Democrats have flatly denied his claims.

Mr Yudhoyono handily won presidential elections in 2004 and 2009 on a platform of zero tolerance for corruption, but Mr Nazaruddin has clearly hurt the Democratic Party’s image and poll ratings. While he can’t seek another term in office, the president will remain its chief patron after he steps down in 2014. Whether Mr Yudhoyono’s successor is another Democratic Party leader remains to be seen, given that Mr Nazaruddin implicated two potential presidential candidates in the scandal. Then there’s the future of the party itself, which was founded by Mr Yudhoyono ahead of the 2004 elections. Without his star power on the stump as a candidate, some believe the Democrats will crumble in parliamentary and presidential polls in 2014.

For the most part, the Democratic Party’s political rivals stood back and watched it squirm. But after Mr Nazaruddin was brought home and placed in detention, a group of lawmakers from rival and opposition parties curiously visited him in jail, after which Mr Nazaruddin claimed he had “forgotten everything” about the dormitory scandal.

It is just possible that Mr Nazaruddin will strike a deal with the KPK and tell all about the massive web of corruption that remains a fixture in parliament. In recent months, for example, 28 current and former lawmakers were sentenced to prison for accepting bribes to vote for a candidate for deputy central bank governor in 2003, before the Democratic Party was even in parliament. If Mr Yudhoyono’s rivals want to play hardball with him over the Nazaruddin scandal, they should pause to consider that they have far more skeletons in their own closets.

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Indonesian Election Machinery

Steady at the ballot box

The Economist -Oct 5th 2011, JAKARTA

AT LOEWY’S, the South Jakarta hangout favoured by the city's glitterati, the atmosphere is distinctly boom-time. An odd but amiable population of Australian miners, local soap-opera stars, foreign diplomats, and minor tycoons rule the roost. The impression is leisurely, if colonial—waiters in black aprons bow obsequiously—and the sound of traffic in the outdoor section has been banished, a minor miracle in Jakarta.

Indonesia's consumer bonanza has drawn Loewy’s many foreign businessmen, for whom the country’s burgeoning middle class is looking like a goldmine. Even more recently, the place is looking like a pillar of economic stability, against the backdrop of distant conflagrations in European. Don’t say it too loudly, but the outperformance has been mostly accidental. The consumer boom was the gift of an economy that could no longer de-lever, come the crisis of 2008—total banking-system assets had been falling since 1999 and the credit cycle was bound to turn. A commodity binge in East Asia also made a timely appearance. But Indonesia tends to get credit at least for political stability. If “anybody would have asked myself and many others in ’98 or ’99 whether or not Indonesia was going to Balkanise, or disintegrate, it would have been tough to disagree, because at the time it was very gloomy,” the country’s own investor relations chief, Gita Wirjawan, admitted recently. The political fortitude of the Indonesian republic has been upheld since then, and many think its democracy an exemplar for the rest of the world. It’s true too that the Indonesian elections in 1999 and 2004 were notable for their order, transparency and overall legitimacy.

How alarming then, that the country’s political stability is being re-evaluated, at least by one long-time observer. The 2009 contest was marred by significant chaos, a lack of transparency, and would have triggered far larger issues if the incumbent president, Susilo Bambang Yudhoyono, had not won his victory by such a commanding margin, argues Adam Schmidt in a recent essay,

Mr Schmidt is the Indonesia chief of the International Foundations for Electoral Systems, which monitors this sort of thing. The post-Yudhoyono era is likely to yield closer outcomes and a prolonged and contested affair might dispel the delightful aura of promise that hangs in the air at Loewy’s.

The most contentious issues in the 2009 vote were errors in the voter registry. The large-scale omission of some eligible voters and the botched records of others in effect disenfranchised anywhere from ‘hundreds of thousands of Indonesians to tens of millions”, according to Mr Schmidt. The losing candidates filed a complaint with the Constitutional Court, which only dismissed calls for a rerun on the grounds that Mr Yudhoyono had won by a wide margin. A closer result would have exposed the judges to greater public scrutiny, potentially politicising the issue and calling into question the contest’s legitimacy.

A second indication of 2009’s election chaos was the large number of invalid votes that were cast—around 14.4% of the total (compared to 8.8% in 2004.) Invalid votes exceeded those received by the third highest-ranking party (PDIP’s 14.03%)—and were only slightly below the votes cast by the second-placed party (Golkar’s 14.45%). Voters were flummoxed by the electoral commission’s decree to that the ballot be marked with a pen (mencontreng) rather than by punching a hole in the ballot paper (mencoblos), as had been done in the past. Though a relatively minor change, the commission chose to maintain such a rigid interpretation of voter intent as to disqualify a large number of votes. This will happen again in 2014 if the commission continues its tradition of not explaining new procedures to the public particularly well.

Finally, the vote-counting process was not as transparent as it should have been. At the polling-station level, things worked fine, but the process by which the results reached the next administrative level were opaque. Mr Schmidt noticed that many of the forms had been crossed out and re-entered at various stages and that this was not really explained. Could manipulation be at work? Certainly some candidates for the legislative elections thought so, and complained that the final tallies did not reflect results reported by polling stations.

Many Indonesians will dismiss these concerns as quibbles—most will never have even heard of them. And it’s not wrong to say that the bigger story was the massive voter turnout in a peaceful poll marked by lively political exchanges. But to what extent were major flaws covered up by Mr Yudhoyono’s thumping victory? Surely it is worrying that, according to at least this one account, 2009 fell short of many the same voting standards that had been achieved in 2004. A prolonged, disputed outcome in 2014 could turn procedural wobbles into a bigger political crisis.

A graft defendant, prosecutor Sistoyo, was attacked after his trial at the Bandung Corruption Court on Wednesday.

Sistoyo, who worked with the Cibinong Prosecutor Office, suffered a wound to his head.

A man who identified himself as Deddy Sugarda of the Anak Bangsa organization attacked Sistoyo using rolled paper when Sistoyo left a court room at 10 a.m. Sistoyo ducked, while an officer of the Corruption Eradication Commission (KPK) pointed a gun at the attacker.

Deddy then disposed of the paper, which apparently concealed a 20-meter machete.

“He betrayed our country. He should punish people but now he is punished,” Deddy said on Wednesday while being taken to a police car.

During the trial, Deddy waited outside the courtroom while handing out papers containing details of an anti-corruption campaign to journalists.

“I will meet the court chief to protest this incident. This is harassment against the court. This incident is outrageous,” Firman said, adding that he would also report the incident to the Judicial Commission, the National Commission on Human Rights and the National Police.

The KPK caught Sistoyo accepting Rp 99.9 million (US$10,890) from a defendant named Edward in November last year. (swd)